Question

When merchandise is sold, the revenue is reported as sales and its cost is recognized as an expense called ________?

1) Cost of Goods Sold
2) Operating Expense
3) Gross Profit
4) Net Income

Answer 1

The cost recognized as an expense when merchandise is sold is called Cost of Goods Sold. It is distinct from total revenue, which is calculated as Price multiplied by Quantity.

Step-by-step explanation:

When merchandise is sold, the revenue is reported as sales and its cost is recognized as an expense called Cost of Goods Sold. Total revenue is the income a firm generates from selling its products. It is calculated by the formula Total Revenue = Price x Quantity. Total cost, on the other hand, is what the firm pays for producing and selling its products, which involves converting inputs to outputs. The sum of the cost of these inputs is the total cost.